I have thoughts and questions about Social Security reform

[HankReardon]

Social Security as it is today is not a fully funded savings and investment system. It is redistribution system, workers pay in, beneficiaries receive payments and the surplus is lent to the federal government and spent. My first question, What type of bond is held by the Social Security System for the money owed it by the federal government?

I think it was 1968 this started, almost 4 decades ago. Estimated SS contributions for the year 2005 are $575 billion, the estimated pay out is $515 billion, the $60 billion dollars will be lent to the federal goverment and spent. After 36 years of this borrowing how much is now owed the system? Including gained interest. I have heard estimates of over $1 trillion.

When Democrats say that the Social Security System is okay until 2043 are they using this money that was lent and spent by the federal government? We all know there is no actual money there, if it was to be paid back to the system it would have to be done with deficit spending.

When naysayers lament about how much it would cost to reform the SS system I would love to hear someone come back with, "The federal government owes the system over $1 trillion, how many billions do you thimk it will cost to reform the system?"

Anybody out there in the Public Employees Retirement System (risky scheme?)that would rather be in the Social Security System?

[Wuli]

Right now the COLA (cost of living increase) for Social Security is calculated based on the inflation rate for wages, not prices. Inflation has been so low that the COLA has been higher than the rate at which prices have gone up. Besides, if your retired, the importance of a COLA is to keep up with prices, not the working guys wages.

One of the suggestions is to use a price based COLA for Social Security. Some long range projections I seem to remember look like 25% lower benefits, than now projected, after 2030, for the higher level beneficiaries.

Unfortunately, I have never yet seen a combination of proposals that eliminates the need for some use of general revenue taxes for some portion of the Social Security shortfall.

[mellyK]

It's confiscated 100% whether in private accounts or not.

Just give me my money. It'll be safer under my pillow.

[jackbill]

What type of bond is held by the Social Security System for the money owed it by the federal government?

They are "Special" Treasury Bonds, which are non-negotiable, i.e. they are not sold to to public. All of the trust funds, like the federal civilian and military pension funds are "invested" in these bonds.

After 36 years of this borrowing how much is now owed the system? Including gained interest. I have heard estimates of over $1 trillion.

It's currently about $1.7 trillion.

When Democrats say that the Social Security System is okay until 2043 are they using this money that was lent and spent by the federal government? We all know there is no actual money there, if it was to be paid back to the system it would have to be done with deficit spending.

Yes, they are. They are assuming that somehow the government will come up with the cash, which, by the time that it is needed, will amount to about $6 trillion.

By the way, if the cap was lifted on earnings above $90K, all of the increased FICA would go into the Trust Fund and be spent. It would thus add to the $6 trillion unfunded liability needed after 2018.

[avitot]

I think current and soon-to-be recipients of Social Security should share in the burden of averting disaster.

the current especially since they paid less than the soon to be recipients.
People should not receive more than they put in. since I have been paying 12% my entire career, while current recipients paid a far lower amount, and have been receiving more than they put in it is they not us that should make the sacrifice.
we are already making the sacrifice of paying an ever increasing FICA that we will not get back.
once a person has received what they put in the check should stop.

[WeaponOfMassInstruction]

What I am seeing at this point is that the anti-Personal Accounts crowd are winning because they are, at this point, framing the debate.

GWB had momentum coming out of the election, but he has been awfully slow in sharing the details of his plan, aside from creating Personal accounts and that he doesn't want to increase the Payroll Tax. Aside from that, we really don't know a great deal about what he wants to do, so the Dems can bring up all sorts of possibilities and demagogue them.

While I am for the creation of Personal Accounts (I'd love to have had the choice 20 years ago when I was just entering the work force), based on what (admittedly little) I know about the President's plan, I tend to share the view that Private Accounts, in and of themselves, won't 'fix' Social Security.

What I'm guessing is that PAs will be used to make up for a decrease in guaranteed SS benefits paid to future retirees. Unless the Payroll Tax percentage is increased or the Cap raised dramatically, I just don't see how we're going to be able to divert a third of a worker's 'contribution' to the SS fund and still have enough left over to pay full guaranteed benefits. The math just doesn't work. My thought is that the guaranteed benefits might be reduced by 10% to 25% >BUT< that decrease will be more than offset by the return from your PA, so the net result would be that you'll receive a greater overall retirement benefit.

Trouble is, admitting that would be viewed as political suicide by all but the most courageous politicians and give the Dems a big stick to whack Republicans with. Further, there are enough Republicans who aren't exactly enamored with the proposal as we know it now- just wait until they have to explain to their constituents that their guaranteed benefits are going down......

[John Valentine]

I won't argue that we'd all be better off keeping our own money, but that proposal just isn't on the table, and it won't be.

The thing about choices is that we have to make them among the range actually available to us.

It is sad to see that in the midst of this very important discussion, you blur the real distinction between a tax, which Social Security is now, and a contribution (even if forced) to a fully vested personal account.

When you own the money, it's not confiscated, even if there are some restrictions on your freedom to use the money as you would like. It's still WAAAY better than seeing it gone.

[John Valentine]

By the way, if the cap was lifted on earnings above $90K, all of the increased FICA would go into the Trust Fund and be spent. It would thus add to the $6 trillion unfunded liability needed after 2018.

Yep, it would just make things worse.

[petercooper]

http://www.nypost.com/seven/03082005/postopinion/opedcolumnists/42021.htm

[petercooper]

Where is the $$$ in deferred taxes that will be paid on our 401k's, IRA's,pensions listed on the books 20-30-40 years out?

[evilC]

>>> IMO The ones who should bear the burden this theft are our Pubic Officials who made certain their own nests were feathered and used the SS Funds to finance their reckless, irresponsible spending - Spending that most Americans applauded (Remember LBJ's Great Society?) <<<

I agree! Of course, whatever shape "reform" takes we can be sure that will not be part of it.

Sad thing is, many people love government spending (Social Security, Medicare, Medicaid, public education), they just don't like paying for it. Perhaps I should say, they don't like paying for it themselves.

[petercooper]

If we only had a "lock box"....

[drt1]

Yes. The illusion of Third Party Payer schemes is alive and well, and on BOTH sides of the aisle. No sooner does our Gov't start to fess up about the theft of SS than they provide us with another scheme in the form of Medicare (AKA Welfare for Big Pharma). To make it more palatable to the more easily seduced they adorn it with Gov't paid for VIAGRA.

I hate this S$it and, like SS, I want out except the Gov't has blocked all of the exits!

[magellan]

Technically, the Social Security surplus is "invested" in U.S. Treasury bonds. However, I don't know if there is any obligation for the U.S. government to pay the money back with interest. Nor do I know if there is any obligation of the government to pay it back at all.

As for the questions about SSDI, SSDI is totally separate (again, in theory) from the Social Security retirement benefit. 10.6% of the 12.4% payroll/employer contribution goes for retirement, and 1.8% of the contribution goes to SSDI. SSI is not funded from Social Security funds, it is funded from income taxes.

More at: http://www.mysocialsecurity.org/quickfacts/faq.html

[ran15]

Getting it indexed to growth in the cost of living has to be the first step. Nothing is more powerful then that over the long run, in allowing us to deal with the issue.

Right now if we make our workers more productive, it will simply raise wages as always.. meaning we are in the exact same situation with SS as we are in now.

The amount of reduction this would mean for benefits would depend on the amount the productivity increased in the meantime. If we had say double productivity by 2030, which we should be able to accomplish.. then SS would only be 50% of the benefits as if we left the current way in place.

Even the Europeans, and Canadians have their pensions indexed to the cost of living, not wages.

[ran15]

I no longer really believe in private accounts, although I would take it over the current system..

The goal should be to phase SS right out, not save it. And as you said the key point is whethere the government is taking the money from you and blowing it on sociology professors.. or taking the money from you and investing it in the stock market..

Its still taking the money from you.

[LowCountryJoe]

Did you happen to read this the other day?

[Woodworker]

In the "con" article, the premises are:

1. Additional investment will not result in new economic growth, only P/E ratio decline.

2. No one starts saving for retirement until they're about 40.

That fixes the outcome of the debate. If you need more evidence, then Google "Russian Retirees" and check the news for Dec. 04 through Feb. 05. The Russia government could not afford to raise taxes enough to maintain retirement benefits, so they drastically cut & eliminated benefits.

[WV Mountain Mama]

If Al Gore would have been elected, it would have stayed in a lock box.

By the way, I know how it works, I was making a joke.

[petercooper]

I know I read about it somewhere.

http://www.businessweek.com/magazine/content/03_26/b3839102_mz029.htm

[petercooper]

http://www.businessweek.com/magazine/content/03_26/b3839102_mz029.htm